Marketplace - A looming deadline for student loan forgiveness

Episode Date: April 26, 2024

People with certain federal student loans have until Tuesday to consolidate them and qualify for debt cancellation. The Department of Education is reviewing over 40 million loan accounts and issuing credit for past payments that previously didn’t count toward forgiveness. Also in this episode: a look at the latest inflation reading, Americans’ savings habits and pop-up coworking spaces.

Hey Marketplace listeners, you know around here we like to think you're never too young to learn about the economy and financial basics. That's why we're bringing the Million Bazillion Live Tour to schools to teach important lessons about budgeting, investing, saving, and more. It's all the fun of the podcast, but now live, immersive and interactive. Special thanks to our tour partner, Greenlight, the debit card and money app for kids and teens. Learn more about Greenlight at greenlight.com slash million.

That is greenlight.com slash million. The numbers are not going in the direction the Fed would like them to be going. From American Public Media, this is Marketplace. In Washington, D.C., I'm Kimberly Adams in for Kai Rizdal. It's Friday, April 26. Good to have you with us. Capping out a week of big economic data releases, we got a view this morning of the Federal Reserve's preferred inflation measurement for March, the Personal Consumption Expenditure Price Index, or PCE.

And the headline? Core PCE, that's excluding volatile food and energy, was up 2.8% from the year before, which is still well above the Fed's 2% target. That and much more to discuss with so little time, but we have Catherine Rampell with us from the Washington Post and just Catherine today, but you are more than enough. Happy Friday! Happy Friday. You'll have to make do with only little of me. I'm sure we'll be fine, but let's talk about PCE first. Hotter than expected, but

not way hotter, but still not what the Fed wants to see, right? Absolutely. Look, it could have been worse. And some other indicators that we saw recently made it look like it could be worse. But it's still not great. Definitely hotter than the Fed wants to see. And part of what was going on here is that it seems like consumers were dipping into their savings to keep spending, and that may be part of what's pushing prices higher and

higher. And I think there are risks ahead. It seems pretty likely that when the Fed next meets, they will signal that they're a little less confident than maybe they had been recently about how quickly we can get back to their target rate, 2% as you mentioned. And so what that means for interest rates we'll have to see, but those rate cuts may not be coming as soon as many borrowers would like to see them happen. Interesting, you mentioned savings. We've got Henry Epp coming up talking a little bit more about that savings rate.

But we also got GDP numbers this week and the US economy is growing a little bit more slowly than folks expected. Can you talk about what's holding things back and sort of the interplay between GDP and PCE? So the GDP numbers were much lower than they had been relatively recently, but I don't think there anything to get too freaked out about at this point. The economy is still chugging along. We still seem to be doing much better than many of our peer countries abroad. But you know, those inflation numbers, still not great. I know that some people out there have been uttering the dreaded S-word, stagflation,

the idea that you might have inflation and stagnating growth. I don't think we are there yet. The economy still looks relatively hot. And I think if you kind of dig into the guts of the GDP report, it did not look quite as discouraging in any event, as the headline number suggested. I want to read a tweet from Diane Swank, who's a chief economist over at KPMG and also regularly on Marketplace Morning Report. And she wrote this morning on X, the data is in the wrong direction for the Fed and reflects the dry tinder that was ignited as financial markets rallied and tried to front run the Fed on rate cuts starting in November of 2023.

That easing of financial conditions stoked inflation and created a floor which made it difficult for the Fed to get inflation to recede into the background which is the primary goal now the Fed will be on hold on its own monetary policy purgatory as financial markets reverse. What's your take on that? I think that's quite possible. It did look like the markets were getting ahead of the Federal Reserve, were anticipating and pricing in rate cuts certainly much sooner than the Fed seemed to want the markets to act anyway, wanted market participants to act which led to loosening financial conditions and you know as I just mentioned and as you'll go into later in the show, savings

rates are down, which means that if consumers are still spending as much as they had been before or more, but they're dipping into their savings, they may need to be purchasing more things on credit. And if credit is easier to come by, financial conditions are a little bit more lax, that will enable more and more spending, which, you know, all of that stuff feeds into inflation, feeds into price growth. hypothesize that part of the issue here is that the Fed's intended tightening of financial conditions has not been quite as tight as they intended maybe because markets were getting ahead of them. But again, there's a lot of other stuff going on here too. I think consumers really got used to spending.

We saw a huge spending spree that began earlier in the pandemic for goods in particular that hasn't really abated. And so as long as there's that really strong demand out there enabled either by income gains and or credit, that's going to help push prices further unless you see some major supply side changes. In the minute or so we have left, I mean we saw consumer sentiment is down, but as you said, the spending remains strong. Do you think consumers, aka us, have just kind of baked in and accepted inflation or,

you know, have we ever really done the thing that people predicted we were going to do, which is change our spending habits based on inflation. Usually there's this line that economists say that the cure for high prices is high prices. That basically when prices get really high they discourage people from buying stuff and that in and of itself should lead to either lower prices or at least slower price growth. And we have seen slower price growth, but not quite as we've been discussing, not quite where the Fed wants it to be. And it's not clear why.

I don't know, again, if consumers kind of got used to spending as much as they have been. Again, at some point, they should hit some limits, particularly if their incomes are not able to sustain that level or that increased level of spending. Or I don't know, people are feeling flush, you know, for lots of other reasons. People, you know, the value of their homes, for example, have gone up. So that may also, that wealth effect may also be enabling more spending. But I think it's a bit of a puzzle at this point.

Dissertations on that to come, I'm sure, in the next couple years. Katherine Rampell at the Washington Post, thank you so much. Thanks Kimberly. On Wall Street today, tech stocks help push the markets up. We'll have the details when we do the numbers. So as we were just mentioning, that PCE report we got today did give us a bit of insight into the financial health of American households, specifically how much money we're saving right now. That's the personal saving rate that Catherine was talking about, how much money we're able to keep after we finish spending.

And that declined a bit to 3.2%, which is the lowest level since October of 2022. Henriette has more on that. Generally, when the personal saving rate dips, it's not a great sign for a lot of American households says Angela Fontes, Vice President of Policy and Research at the Financial Health Network. We start to be concerned about households' ability to withstand financial shocks if, unfortunately, the car were to break down or they needed to replace an appliance.

But Americans are choosing to spend more right now rather than save for those potential shocks for a few reasons. For one, everything consumers buy has gotten more expensive, says Mark Hamrick at Bankrate. They resent the high prices that they're seeing, but nevertheless think, you know, let's go ahead and spend. Two, a lot of people may still be holding on to some of the money they stored away during the pandemic, says Tim Quinlan, senior economist at Wells Fargo.

When you've got a full piggy bank, you don't feel like you have to set aside as much from each paycheck. And three, high-income Americans have an appetite for some risky investment bets right now. Joe Brusuelis is chief economist at RSM. If their appetite for risk is enhanced, savings rate tends to fall because they're reallocating

assets out of liquid guaranteed accounts into more riskier accounts. Brusuelis says that appetite for risk could grow even more if central banks around the globe start cutting interest rates. And I would not be surprised to see the overall savings rate fall on the back of that. for risk could grow even more if central banks around the globe start cutting interest rates. And I would not be surprised to see the overall savings rate fall on the back of that. And he says investing money instead of just socking it away could be a sign of confidence in the economy.

I'm Henry Abbott for Marketplace. Speaking of confidence, if you want to make sure that you have all the news you need to start your day confidently, David Brancaccio and the team have you covered on the Marketplace Morning Report. Check them out every morning or wherever you get your podcasts. Despite the jump in remote work that began during the pandemic, only about half of U.S. workers have ever worked remotely, according to polling from Gallup, and most only do it a few days a month. But for the folks who are fully remote, four years in, for some, it's getting a little lonely. And that's a business opportunity for event planners. In cities from Dallas

to Los Angeles, they're organizing pop-up co-working events at small businesses. KCRW's Megan Jamerson reports. Megan Jamerson, KCRW News Inside a cafe in Los Angeles' Korea town, about a dozen people are gathered in a circle for an icebreaker. So maybe we can do name, neighborhood, maybe what you're working on or excited to work on. That's Daniel Che. His company, L.A. in Common, organized this co-working event for remote workers.

For the last hour, people from all different industries have been clacking away on their laptops. Usually, co-working is where people buy a membership to a shared office space, but this event is at a cafe to bring remote workers here during slow hours. So I thought this would be a good opportunity to meet people who are in similar situations, empathize about working from home situations. Alice Cho's worked remotely since 2020 for the United Nations. According to Pew Research, about 22 million Americans, like Cho, are still working remotely. This can be great for some workers. No commutes, flexibility for picking up the kiddos. But others say it's really isolating,

including Matt Clevey. He's a writer and an actor. And yes, even he works from home. Like everything's, you know, self tape auditions or zoom auditions. He's here to get some face to face interaction. I feel like I'm still stuck in that like pandemic stay at home mindset and routine, even though you know things have opened back up now for a while. Loneliness is a big problem in America. The U.S. Surgeon General declared it an epidemic last year. Daniel Che says there is an overlap of people who want connection. As well as you know they have the ability to work from home or hybrid, why not bring those two together

and kind of create an experience as a solution? Something that sets these events apart is that they start cheap. We work charges about $200 a month or $30 for a co-working day pass. Che's events are around 15 bucks, and these pop-ups are becoming more common. Andrea Ramirez is another event organizer. Her model is to ask bar owners if she can use their space during the day when the bar is closed. We bring the people, they provide the space, and we share the joys of our labor.

Ramirez's company is called The Next Fun Thing, and she shares a portion of the $18 ticket revenue with the bar owners. To be clear, there's no alcohol, it's coffee only. She says the pop-ups can kind of feel like a library with everyone focused and quiet on their laptops, but now as people become regulars... They're starting to form this like co-worker like relationship with each other where people are naturally mingling and networking which is beautiful. Back at the coffee shop event, Hannah Lee, who is a podcaster, says if so many of us are working remotely it's nice to be together. If we're all separately in our homes just all our laptops like staring at the screen might as well

like you know say hi, chit chat a little bit and then also be productive. She says she didn't make any new besties but that's okay. I think I just like enjoy the small interactions of like oh maybe you're just a passing person in my life that can be it. Which is just enough to feel less lonely in our work from home world. In Los Angeles, I'm Megan Jamerson from Marketplace. Music Coming up. Our average dollar amount per sale is up even though we have less purchases. As long as those numbers are going up though, right? But first, let's do the numbers.

The Dow Jones Industrial Average gained 153 points, 4 tenths percent, to close at 38,239. The Nasdaq picked up 316 points, 2 percent, to end at 15,927, and the S&P 500 rose 51 points, 1 percent, to finish at 5099. For the week, the Dow improved 2 thirds percent, and the NASDAQ added four and a quarter percent. The S&P 500 grew two-and-seven-tenths percent. ExxonMobil slipped two-and-three-quarters percent on worse-than-expected first-quarter earnings after a fall in natural gas prices and lower margins on oil refining. Chevron moved up a third percent after posting first quarter profits that beat analysts' expectations.

Intel tumbled more than nine percent after the chipmaker issued a weak forecast for the current quarter. Texas Instruments added one and a quarter percent. Social media company Snap surged more than 27 percent on earnings and revenue that topped analysts' expectations. The company cited growth in its digital advertising business. Bonds rose, the yield on the 10-year T-note fell to 4.66%, and you're listening to Marketplace. With access to so much information, it's hard to feel like an informed, discerning citizen.

That's why on Make Me Smart, which is a podcast from Marketplace, we make it easy for you to stay in the know. Hi, I'm Kai Rizdal. Every weekday, Kimberly Adams and I unpack the latest from Washington D.C. The Senate minority leader has announced that he will step down as the Republican leader. What's happening in AI? I mean, don't buy at the top, but holy cow, artificial intelligence and all the companies related to it are the hot new thing. And we do the numbers. So as a refresher, inflation is the rate of increase in the prices of things. It's not just sort of things getting more expensive. It's a speed at which things get more expensive.

Because in a world that's constantly changing, we all need to stay smart. Listen to Make Me Smart wherever you get your podcasts. This is Marketplace. I'm Kimberly Adams. A big deadline is coming up for people with federal student loans. Borrowers with certain kinds of loans need to consolidate by this Tuesday, April 30th. And that involves basically refinancing with the federal government in order to be eligible for debt cancellation through two existing programs, income driven repayment and public service loan forgiveness. Marketplace's Samantha Fields reports. Jordan Pope-Roush was 18 when he first took out student

loans in the late 90s. I went to two private schools for undergrad and then for graduate school. Emory University for college then the University of Southern California for his MFA in screenwriting. I think when I finished USC I want to say I owed like a hundred and thirty grand total. At the time, he was told it was good debt. It's not, there is no good debt. Pope Rauch is 42 now, and he is still paying those student loans. He's got about $60,000 left.

But recently, he mentioned all this to a friend who works on student loans, and she started bugging him to consolidate. If he did that before April 30th, she told him, he would be eligible to have the rest of his debt forgiven, likely in just a few years. Betsy Maot at the nonprofit Institute of Student Loan Advisors says that's because of something the Department of Education is doing right now called the one-time account adjustment. Catchy, I know. Essentially what it is, is it's saying, listen, we don't think that the industry as a whole

did a good job communicating to borrowers about the existence of the income-driven plans. Income-driven repayment plans have been around in some form since the mid-90s. They allow people with federal student loans to make monthly payments based on their income. Those payments are often lower than they would be on a standard 10-year repayment plan, so it takes longer to repay the whole loan. But one of the things that's baked in to these IDR plans is that if you're on them for either 20 or 25 years and you still have a balance, they forgive the balance. At least that's how it's supposed to work. In reality, Abby Shafroth at the National

Consumer Law Center says very few people were actually getting that forgiveness. Abby Schaffroth, National Consumer Law Center, New York Times, New York Times, New York Times Decades of loan servicing mistakes and systemic failures across the federal student loan program had prevented most borrowers from getting credit for all of their time in repayment, meaning that borrowers were stuck in debt when they should have been eligible for loan forgiveness. The Biden administration is trying to fix those past mistakes by reviewing every borrower's account — that's more than 40 million people — and giving them credit for years of past

payments. Nearly a million have already had their loans forgiven through IDR, and many more are years closer. Mike Pierce at the nonprofit Student Borrower Protection Center says not everyone is currently eligible. You need to have the right type of loan to get your debt canceled under income-driven repayment. And a lot of people don't.

Older loans made by Sallie Mae or made by Citibank or other big banks back before 2010, they didn't have the same rights and protections that are available to people that have newer loans made by the federal government. And so to be able to take advantage of these debt relief opportunities, you need to turn your older loan into a loan made by the federal government. Jane Fox at the Association of Legal Aid Attorneys Union says a lot of people who could benefit from this temporary fix still don't realize it. There has been very little direct outreach to borrowers from the Department of Education.

To anyone who's hearing this who's not sure what kind of loan they have, Fox says now is the time to find out. Generation X, elder millennials, the people who are really going to be impacted by the IDR account adjustment, take the 10 minutes to look into this, to make a phone call, to go on studentaid.gov. Before Tuesday, it could pay off in a big way. I'm Samantha Fields for Marketplace. At the top of the show, Catherine and I were talking about the macro picture on inflation and consumer spending. There is, of course, the micro picture of what it's like to be running a business where those consumers are spending. There is, of course, the micro picture of what it's like to be running a business

where those consumers are spending. So we gave one of our retail regulars a call. Annie Lang Hartman runs the greeting card and gift store Wild Letty in Leelanau County, Michigan. We definitely feel like we call it a shoulder season. So it's between that slow season and that busy tourist season where you never know what the day is going to be. So it's between that slow season and that busy tourist season where you never know what the day is going to be. So during the week, it could be a zero dollar day. I'm just going to say it. We have zero dollar days all the time this time of year, or it could be a really great day during the week. But weekends is where we make our money. So it's really all over the place. You can't really plan on busyness this time of year.

We are both up online and in store. I honestly was surprised when I was looking at it this morning, our average dollar amount per sale is up, even though we have less purchases, which makes it feel slow, but we're still doing good. Our busy season is going to pick up just in a month. And I think my biggest thing is we work with manufacturers to make our own products and coming off a slower season, like having the stomach to spend a lot of money trying to be as smart as

possible when we're making new products is something that's a big stressor to me right now. The only thing that we've seen change for costs have been our utilities. I feel like when we first started out, our utility costs were just a few hundred dollars a month and now it's a thousand dollars a month. I haven't looked at it recently, but every time I do look at it, I'm like, holy cow. As far as products, we did up our prices of our greeting cards to accommodate the rising costs elsewhere. I just really want to see people come in the door and see our customers that we only get to see a few times a year when they're here for the summer, and locals coming back to say hi, and a lot of what we sell are products that I make and I design, and I get so much joy out of creating

because I am a creative person. And I think knowing that that business supports that passion is kind of what keeps me motivated 90% of the time. When I'm in the store they're talking like, oh who does all the artwork? I'll say, oh the owner of the shop, she does all the artwork. Because I have a really hard time taking compliments. So yeah, my employees yell at me. Annie Lang Hartman trying to take compliments at her business, Wild Letty, based in Lelandaw

County, Michigan. This final note on the way out today, at last, a bit of positive news in the media industry. Satirical website The Onion will be continuing with its funny takes on the news. Private equity-backed G.O. Media had reportedly been trying to sell the site, along with others in its portfolio, for a while. Now The Onion has a buyer, a new company called Global Tetrahedron, that name being a nod to a fake company Onion Staffers created in 1999. Speaking of Onion Staff, the new CEO, Ben Collins, posted on X that the new company will be keeping the

entire staff and bringing back the Onion News Network. Our theme music was composed by BJ Liederman, Marketplace's executive producer is Nancy Fargoli, Donna Tam is the executive editor, Neal Scarborough is the vice president and general manager, and I'm Kimberly Adams. Have a great weekend, we'll be back on Monday. This is APM. With access to so much information, it's hard to feel like an informed, discerning citizen. That's why on Make Me Smart, which is a podcast from Marketplace, we make it easy for you to stay in the know. Hi, I'm Kai Rizdal. Every weekday, Kimberly Adams and I unpack the latest from Washington, D.C.

The Senate minority leader has announced that he will step down as the Republican leader. What's happening in AI? I mean, don't buy it at the top, but holy cow, artificial intelligence and all the companies related to it are the hot new thing. And we do the numbers. So as a refresher, inflation is the rate of increase in the prices of things. It's not just sort of things getting more expensive. It's the speed at which things get more expensive.

Because in a world that's constantly changing, we all need to stay smart. Listen to Make Me Smart wherever you get your podcasts. expensive.